Stocks drop over earnings outlook

NEW YORK -- U.S. stocks fell yesterday for a second day as a slumping dollar and more signs that corporate profits have peaked undermined confidence in last week's record-breaking rally.

Auto stocks slumped as a slowdown in car sales prompted analysts to lower earnings estimates on Chrysler Corp. and Ford Motor Co. Other stocks sensitive to swings in the economy -- chemical, paper and construction equipment shares -- retreated as investors bet that growth in earnings will slow in 1995.

Stocks also suffered from the plunge in the dollar, which plummeted to a record low against the Japanese yen and a 28-month low against the German mark. The nose-dive made dollar-denominated assets less attractive to overseas investors.

The Dow Jones industrial average, which a week ago rose above 4,000 for the first time in its 99-year history, fell 14.87, to 3,979.93. The average, which dropped 16.25 points yesterday, is down 0.8 percent from its all-time high of 4,011.74 last Friday.

Losses in International Paper Co., Caterpillar Inc., General Electric Co. and General Motors Corp. paced the decline among the Dow industrials. The Morgan Stanley cyclical index of 30 stocks -- a barometer of economically sensitive shares -- fell 2.76 to 294.34, its lowest since Feb. 10. Appliance maker Maytag Corp., Bethlehem Steel Corp. and paper company Mead Corp. were among the biggest losers.

Recent reports signal economic growth is slowing too much, said John Kim, chief investment officer at Aetna Life Insurance and Annuity Co. A government report yesterday showed January consumer spending rose just 0.4 percent. That came a day after a report showed that January construction spending dropped for the first time in six months.

"It's good that the economy is slowing" because that makes an acceleration of inflation less likely and eases pressure on interest rates, Mr. Kim said. "But investors see it may be slowing too much now, which will hurt corporate earnings."

Among broad market indexes, the Standard & Poor's 500 stock index fell 0.52, to 485.13; after being down as low as 483.19. The index, which dropped 1.74 points yesterday, closed at an all-time high of 488.26 on Friday. The Nasdaq composite index rose 1.81, 793.68, after falling as much as 1.15 points earlier.

Among advancing issues yesterday was Abbey Healthcare Group Inc., which soared $7.375, to $35.25. The company will merge with Homedco Group Inc. in a $1 billion merger to create the nation's largest home health-care provider. Homedco's stock rose 8 3/4 to 52 1/4 .

Almost six stocks fell for every five that rose on the New York Stock Exchange, as more than 330 million shares traded hands on the Big Board. The three-month daily average is 321.4 million shares.

Stocks pared some of their losses late in the day as the dollar regained ground.

First-quarter and full-year 1995 earnings estimates for Chrysler were lowered for a second time in four days at Merrill Lynch & Co. Analyst Harvey Heinbach yesterday also cut his estimate for 1996 earnings.

Since Jan. 9, the Standard & Poor's auto index of three stocks is down 11.2 percent.

Suggestions that an economic slowdown this year may be deeper than expected also came from several retailers' reports on February sales yesterday. The Standard & Poor's department store index of five stocks slumped 17.18, to 1,238.9, its lowest since Jan. 31.